Warren Mosler: MTM-z eta Inflazioaz

@tobararbulu # mmt@tobararbulu

urr. 27

Warren Mosler Inflation Theory – Bull Rally Hypothesis https://youtu.be/dZBPLHnoH-U Honen bidez:



Warren Mosler Inflation Theory – Bull Rally Hypothesis

Discussing the Godfather of MMT’s, Warren Mosler, Inflation and Interest Rate Hypothesis. Also discussing how we could see a massive bull rally, as well as p…

2022 urr. 27


welcome everyone to the mmt macro Trader we are live live stream tonight


as I wait just a second for people to join I’ll go ahead and say hi welcome you all if you are new here make sure


you get subscribed and turn that notification Bell on as well if you do end up finding this video


actually if you are here right now and you’re live make sure you hit that thumbs up button and then if you watch this down the line and you did find this


video helpful make sure you give that Thumbs Up Button a smash as they used to say back in the


day anyway we’re live uh tonight we’re going to talk inflation uh had some really good conversations on


um Twitter today some good threads on Twitter and I thought I would cover those discussions if you are here make


sure you say hi in the chat and uh yeah if you have any questions along the way


about anything uh anything at all just go ahead and fire away and we can uh we


can discuss I think where I actually want to start is with um with what the Market’s doing


today so let me switch to that screen real quick


let’s see we’ll go here and pull up my s p chart and we’ve had one hell of a run


from the low not a little uh what more than a week and a half ago or about a week and a half ago now uh Thursday


after the fomc we dropped to 3 500. it was actually effectively what I what I


anticipated uh I think I called that out almost exactly in the on the last live


stream I had is to check out for that big opportunity for the Bulls here so far they’ve taken full advantage of it


but I will say we are approaching uh really today approached as we were approaching 3 900 a key resistance and


it is going to be that 3 900 uh that the Market’s going to need to get over to really confirm a full shift from really


what we’ve seen for the entirety of this year into a new more bullish style regime too many models I use both the


directional model and the volatility model still have not switched to kind of a buy or bullish signal


each respectively in part because especially the what I call My Vault shift model needs to see a break a clear


break above 3 900 to go ahead and get that we haven’t seen that yet but I did want to point out or at least start with


the fact we’ve seen one heck of a rally and to this point um pretty much expected but that 3900


level is going to be key and I can kind of explain why in the uh in the uh the


the data itself let me bring up my data dashboard here we’re taking a look at the net gamma at each strike level for


the S P 500 across the entire chain and as you can see we have a massive build


positive gamma at 3 900 and a massive negative build at 3600 price is right in


between right above 3 800 we are effectively on the gex flip and it’s these sort of market conditions


that get very very tricky what we need to do is fully cement ourselves above 3


900 and allow that volatility crushing


volatility crushing mean reverting and we mean reversion enforcing sort of uh


sort of hedging activity that happens from the dealers in the market market makers to kick in and we need that to


come into place to wash out any sort of risk of what is still a very large uh


very large basis of of put contracts that are open below the price and the


risk here is is when the dealers are hedging those puts underneath the price and we don’t know that every every uh


dollar of the net build of gamma underneath the current price is in fact


you know a put that was bought by uh by you know Speculator and then the


the dealer on the other side of course selling that but we don’t know that for sure but enough of it likely is and as


price moves lower the dealer the the market maker is forced to sell shares as


price goes lower so that’s why we’re in a very precarious spot as we’re close to the X flip as price pushes lower we’re


going to see more say uh more shares of the s p get sold by hedgers by dealers


as we you know effectively reject this current level and that could uh you know


start once again the selling cycle so we’re far from Clear 3 900 is definitely


the hurdle I mean we are right on the edge and we’ve made it to the edge quite a few times I mean we’ve made it two or


three times to kind of the edge of shaking uh kind of the negative gamma rut that we’ve been in for the majority of the Year unable to make it as you’ll


see in some of the data tonight actually I mean there’s there’s both uh kind of uh possibilities for this market and


there’s still quite a few strong headwinds for this Market it’s going to have to face going forward


so that’s the spot right now uh I mean so far everything’s kind of playing out as good as it can for the Bulls


everything makes sense at this juncture we’re just going to be at a spot where uh effectively can the structural flow


is primarily the fiscal flows kick in or is the degradation that we’ve seen in Bank flow is going to continue to hold


things back and that’s kind of my short my short take at least on on where we are at with the current situation in the


equity space but tonight’s main topic is going to be on


on inflation and the discussions and the Twitter threads that uh that popped up


today and uh particularly kind of the the Warren Mosler mmt thesis on inflation I’ve hit this many times


before I I you know it’s probably worth um talking about again and addressing


again what I can do real quick is uh pull up one of the threads that came up


to kind of set the stage uh the first thread uh by Andy uh constant and doesn’t even have a good


mmt theory suggesting uh it’s just higher fed funds are inflationary I gave


my two cents uh there was also another thread uh by Steve Roth that Steve king


or I’m sorry that Warren Mosler popped into as well and kind of gave his piece so we’re gonna go over some of these thoughts some of these ideas and


um yeah just kind of lay out the lay out the case and uh try and wrap our heads around I


think what is probably the most you know the the the the most realistic uh uh


Theory framework for uh for understanding inflation and then trying to understand you know kind of what’s


been causing the inflation so that’s what’s on for tonight um yeah again real quick if you are new


here hit subscribe hit the notification Bell and then also if you are watching live make sure you hit that Thumbs Up Button much appreciated the the


algorithm will appreciate it um and if you are in chat say hi


um yeah and if you have any questions make sure you let me know let’s talk inflation uh let’s talk


actually I mean let’s kind of use the Twitter threads themselves as a bit of a a jumping off uh part here and I mean


effectively the question is I mean it’s pretty well known at this point at least mmt the theory is is that the higher the


rate increases that the FED is uh the FED is instituting right now through their policy it’s going to likely


support the current inflationary Trend that we have been on and in short and I can just kind of read what I wrote here


the the mmt hypothesis is the Fed is the Monopoly price Setter of rates I mean that’s that’s uh kind of the core mmt


Theory rate hikes increased the term structure prices of the economy and the state now paying more uh so the private


sector also is going to have to pay more and I put in here and I’ll build on this


uh one of the things that we can do is kind of build hypotheses right we can I mean we can go look at the data we can create these theories go look at the


data and see if in fact uh the data presents what we’d expect given our


assumptions and we do see that I mean we do see in um in the actual data itself that the


velocity of money and this is kind of the component of inflation that I think you would see expressed particularly if


the term structure prices as being driven higher uh because of uh because


of rate hikes I think this is the component that we would expect to see and we do in fact see the velocity of money increase uh relative to the FED


funds rate getting pushed higher and it does seem to be that the fed’s funds rate at least is likely kind of uh what


what what’s the actual driver pushing things forward unfortunately the velocity of money that I have here from


the from the Fred database got removed or deprecated at the end of 2021 I


believe so I had to cut this the chart a little short but either way it’s still it still is is


um yeah quite a stunning look here when you overlay the two of them but to give some more depth down the line eventually


Warren Moes they’re laid out his exact uh his exact framework and posted his we


call this kind of paper white paper on inflation this is in the description below right now I believe so if if you


want to read this in full please please do so and in more detail and I think


that the the thing that kind of really trips people up and and also the the um uh what got brought up in the


discussion with Steve Roth as well is um is this idea of the interest payments


adding to the net uh private sector savings and what impact that would have


on inflation as a whole and uh and so you know I’ll address that that’s really where kind of the conversation went it’s


something I really haven’t addressed too too much because and again maybe a big qualifier for this whole this whole


discussion to begin with you know I’m really focused on understanding mmt because from the perspective of a Trader


and investor right obviously I have my my things I hope I


wish for policy wise but primarily um you know what I’m doing here at least


on YouTube and where I want to expend the most of my energy is to understand and and take what mmt the foundation


which I think is the right representation of what you know economic reality actually is and and in in the US


and globally and apply that to understand how markets actually operate and so


um there are some things that I don’t spend a ton of time on in terms of research but what I need to do is glean


okay what is the you know what are the theoretical implications uh not only for


policy but given you know given those kind of policy levers that then get installed based on


um based on these mmt assumptions what can we then determine market wise is a possible outcome so that is I mean that


is really where I’m going to spend my time and my energy so some of these things I just kind of said on the shelf


and say okay you know down the line in terms of policy I can try and think things through maybe deeper down the


line but again my heart in this is really from that of an investor Trader of a market Watcher trying to understand


what the implications might be on the market so bear that in mind is kind of an overall qualifier uh to some of this


uh some of this discussion going back to the to the white paper that Warren Mosler puts out I mean effectively the


first few parts of this he really just establishes the core nmt thesis uh the the the the the the state operates is a


a public Monopoly of the currency nothing I mean if you’ve been around mmt


that makes a lot of sense and it’s really when he starts to get into um really when he starts to get into


kind of the function of the state actually spending as it pertains to setting the price level with the


inflation discussion really happens and so I I would kind of I would kind of argue it like this and and kind of more


Lehman’s terms is effectively when when the state spends one of the one of the


outcomes one of the uh one of the things that it’s doing is it is to a certain extent it’s setting the price and it’s


setting the price to nominated in its own currency for what it is that it’s


purchasing that it’s acquiring uh for uh for its purposes and the reason that


this matters is because ultimately we pay taxes in that currency and then the effect of that is we need that currency


and so it is the the kind of the the base the price floor uh for all exchange


because of its Monopoly situation as the as the currency essentially the currency


creator the only thing he points out here too which is a worthwhile note is not only


can the government itself acquire goods and services directly but it also has a


banking system that uh War Mosler makes the argument for is effectively a government agent right since you need a


bank Charter to open a bank you’re effectively a regulated bank or a


regulated state agent and so even when the bank or even when the state kind of


abdicates its direct authority to create money to the banks it’s still giving it


a regulatory framework it allows it to create money only in certain situations and then even then


now this is my kind of the part on this as well even then the creation of


um of what we’ll call Bank flows it has a completely different Dynamic than that of the actual of the actual what I’ll


call fiscal flow when it relates to kind of the market dynamics but either way the point is still made and I still


think valid that he makes that banks are agents of the state and then he gets


into kind of the the the the meat of it here as it as it pertains to inflation and that


um ultimately when the government decides to set a price and in this


instance he he says hire a soldier that the price level is therefore defined let


me just for example if the state has an open end and off or die or soldiers at 50 000 a year the price level as thereby


defined will remain constant regardless of how many soldiers are hired uh in regards to State’s total spending the


state has set the value of its numerary exogenously providing that information


of absolute value that the Market Force Market forces then utilized to allocate


by Price which exchange values of other goods and services to determine in the marketplace without the state supplied


information however there would be no expression of relative value in terms of its currency uh I have someone saying hi nope I have


I have a bot um we’ll delete those later


let’s see all right


um so I mean effectively what’s uh what it’s saying it is uh if I mean another way to look at it


the state would all of a sudden come in and start to say I don’t know what a gallon of milk goes for my wife does the uh does the grocery shopping but let’s


just say the government comes in and it’s gonna start buying every gallon of milk for ten dollars or what whatever it is


right I mean they’re setting the price floor on that and the uh in sense we’re


all trying to earn money to ultimately save or pay taxes uh with that money


then um um then effectively where you know it’s


it’s we’re all going for that same dollar it’s setting uh it’s setting the price floor he then points out that uh


should the state decide for example to increase the price it pays for a soldier uh to 55 000 per year would be


redefining the value of its currency downwards as important that’s where the inflation Park gets in it would be redefining the value of its currency


downwards an increase in the general price level by 10 as Market forces reflect the increase in the normal


course of allocating price by determining relative value and for as long as the state continues to pay the soldier 55 000 so 5 000 more per year


assuming a constant relative value the price level will remain unchanged and for example the state uh would have to


continually increase the rate of pay ten percent annually to support uh The Continuous annual increase of the price


level by 10 percent so that’s kind of the uh I mean it’s kind of the Crux of how it is the state


is establishing certain price level certain price levels as the Monopoly


um as the Monopoly currency issuer in uh in its uh in its you know kind of


sovereign domain where it controls at any given time so um I mean I I think it’s one piece that


is often misunderstood and just often kind of glanced over when you start


thinking about money as it relates to price setting uh and I think it’s uh really the the core building block on


top of what I think most people are already kind of intuitively understand with mmt uh so that’s the first piece


that you kind of need to get into place and the next piece is the inflation Dynamic that occurs by this and that so


many of prices that get determined that the state’s going to pay out for and I’m starting to add on to his his exact


argument here but ultimately you get a since some of the prices are stuck to


inflation right they get indexed to inflation you’re going to see a Perpetual increase uh in the prices paid


um and so I mean that is one of the effects of kind of the spiral Spiral


upwards in inflation so he makes that case there here uh let’s see let me pull


up some other notes I took on this um I mean the other thing too is since so


many bonds are outstanding in the new bonds that are going to be issued are going to be issued at the higher interest rate the other impact of this


is the new money itself uh is is both costing more and effectively the exact


same thing that was happening in our soldier in our soldier example is now going to be happening with the new money uh coming in so you have quite a few


inflationary channels that are occurring that um that effectively add up to each


other and can kind of start this this higher push and prices but I still think and he doesn’t spell it out I don’t know


uh how much he spells it out in his white paper but I still think the one piece of this that is without a doubt


especially if you’re an investor Trader that is very easy to show is this idea


of term structure of prices and I mean another way to kind of think about this is if all of a sudden the FED were to


set the interest rate to 100 right I mean the entire obviously the heel curve would go wild but what that would do is


is everyone would have to reprice the cost of doing business into the future a


hundred percent higher and then 100 higher the year after that and then you’re right I mean right you’d get this exponential inflationary growth which is


exactly what does happen in hyperinflationary situations right you


get a collapse in the ability for the government to uh to repay its debt because it gives up that Sovereign


control it allows the market to take that over it pegs its a currency to something and then you do get kind of an


inflationary runaway and and a way to demonstrate this that I think is quite intuitive to uh to Traders is to go


ahead and pull up um the uh the front contract uh divided


by the back contract or second month contract of a hard commodity like gold and show that when you’re in a rate


hiking cycle like we were in from 2016 through 2019 or 20 uh essentially post


covet until we’re at today you can see the ratio of the of the the second month


contract by the first month contract also curve higher and it’s it’s not because and obviously Gold’s not going


up and prices not necessarily the gold is going up in price but it’s that on something like gold that doesn’t have a


ton of supply issues and storage is relatively stable uh on on Commodities


like this you’ll see this term structure follow uh follow rates higher and this


happens in effectively in any commodity like gold and to a certain extent in


every commodity the future cost of it is being priced in into that term structure prices and that’s what warmoza talks


about when he’s talking about the term structure prices this video right here that I just pulled up is in the


description below as well he spells out that in more detail well worth watching but that is that is really kind of the


Crux of the argument and that is why ultimately I mean putting all these


pieces together is an mm tier it makes sense that


inflation is going to is going to kind of push higher or at


least continue to be supported with higher interest rates so I spelled this out in a Twitter


thread I’m probably a little more succinct in the Twitter thread uh than I did here but either way spell it out and


immediately the response that I get is regarding well what about the 1970s and


volcker and heading into the 80s what about uh what about that didn’t that


kill inflation and I’ve I’ve brought up actually I think in that Twitter thread


um I can show let’s see let’s see if I can do this in real time I’m realizing


um I’m realizing I should have had this slightly better better prepared


um but but effectively I mean effectively what I showed is this velocity of money by the actual price or


by by uh the the FED funds rate continue to remain true this the same correlation


remained true back in the 1970s right I mean the theory remained true in the 1970s and I think what was far more


likely and I think I did post uh at some point I think I did


post this somewhere yeah eventually I think two things really killed the inflation in the 1970s one


um and unfortunately the fiscal data that I do have that um that goes into my models from the daily treasury statement


only goes back at least daily uh that I can get via the API to 2005.


um so I had to I kind of had to to do this in in as quick and dirty as way as possible but you can see in the late 70s


heading into the the ultimate recession that happened in the early 80s we did see a fiscal crunch as adjusted for


inflation because one of the things as well that you need to think about is um as the fiscal flow is hit those


become net Financial assets for the private sector as they hit obviously if


inflation is pushing higher then every new dollar is valued lower than the dollar prior right so uh even if you


have relatively stable fiscal flows if inflation continues to push higher then


that can create still effectively a fiscal crunch of short and we saw exactly that so I think that is likely


one of the reasons why we saw a recession we also had deregulation of natural gas that Jimmy Carter passed we


also started to see at this point some deregulation um just just overall in energy uh that I


think is a likely component to the disinflationary pressures that we saw that ultimately brought down inflation


what I what I don’t see in and here’s kind of my counter argument to all of uh kind of the the uh the opposite side of


of the inflation coin is I don’t see any data that shows that the higher interest


rates actually led the decrease in inflation it’s the other I mean the data


shows it the other way around and if it were to be true then then my my


immediate question would be it seems like the inverse of it uh certainly isn’t true right because we have seen


for um we have seen for the better up until up


until uh the the the financial crisis post covet up until then we’ve seen


um zero interest rate policy produced no inflation right so certainly uh in Japan


uh still to this day as a desert Palestine they haven’t shown uh any inflate I mean their inflation is at


three percent or whatever uh at this point um and they’ve kept a zero interest rate


policy and they have you know relatively flat inflation obviously uh their currency is having a little bit issue but every currency except for the dollar


is having a little issue in part because of the euro dollar crisis going on right now um but beside the point uh the the


inflation of uh the inflation in Japan remains very low because of the low interest rate and again that would make


a lot of sense from an mmt standpoint uh that uh that you’re going to see


relatively low inflation so I I mean again I’m looking at this as an investor


and as a Trader not so much as a policy person and my thought here is the only conclusion that I can come to based on


the models that continue to predict what reality actually turns out to be is that


the higher interest rates are going to support inflation now the the neoclassical argument is going to be


well eventually it’ll stipend the business cycle but if higher interest rates are going


to allow this income channel of higher interest payment on bonds which would then mean more uh Financial assets more


financial assets of savings in the private sector how is that ever going to happen


especially if it’s going to increase the velocity of money so the income channel is going to just operate at a faster


level right and you know any sort of kind of business Calamity that might come of it will constantly be one cycle


too short because the new you know the new money will flow in there and I don’t I don’t it at least domestically in the


U.S in and of itself I don’t see how that happens I do see a path we’ll get there where something similar to that


could happen but certainly as it’s constructed in mainstream economics I


don’t see that argument happening um let me pull something else up here


[Music] um what I actually think is is a a reasonable possibilities that we just


kind of continue on in a a bit of uh uh I only call it stagflation because at


this point it’s not even a stagflation cycle but where we continue to get kind of surprise growth and surprise inflation and the markets continue to


the markets continue to push higher um I did this is I did want to bring this up as well let me um give me one


second to bring this chart up right here to


kind of continue on um this discussion of of because one of the


things yeah actually I’m going to bounce around I apologize give me a second here one of the things that Warren Moser did


bring up in one of his discussions is that any case the government sector is a net payer of interest uh to the non whoa


that was not what I wanted to read oh here we go uh and I think that the net Financial assets the government has added to the economy is the quantity uh


or is the equity that supports uh the credit structure and this is so so


let me let me let me walk you through my thinking right so neoclassical mainstream economics says that


eventually interest rates are going to dampen the desire for uh for businesses


to borrow for banks to lend and well really for businesses to borrow because it’ll be too expensive


and therefore they will have to lay people off and by laying people off you will get a decrease in demand right so


the main thing there is that businesses need to stop borrowing and then need to lay people off well if a business kind


of my counter to this is that if a business anticipates that they’re going to


continue to get profit and they start seeing that they can raise their prices what you know what’s the what’s the push


to get or to get them to want to lay off people right I mean if they can anticipate even higher profits into the


future what’s the push to start the layoffs right now just take that theory outside of the current environment


momentarily and just I I don’t I don’t see it necessarily and again if you do this from an mmt kind of framework


that eventually the higher interest payment from the the interest rate channel into the private sector


should bolster new private sector savings right and so what I want to then bring up to kind of


uh you know make that argument all the way through is this chart right here and


I think I posted this in one of the one of the discussions and we can go over it I drew it back a little bit further uh


time wise but the orange line is my fiscal flow line


um I’m sorry you know what I’m realizing these are flipped oh orange is the bank flow blue is the


fiscal flow I apologize uh so the blue line is the fiscal flow line and it


comes directly from the daily treasury statement and the orange line is going to be kind of a proprietary model that I


put together to gauge the expansion and contraction of Bank flows and uh if you


know if you know what the stock market does you’ll realize there’s a very strong correlation between that line and


the stock market obviously I tie that all into the models that I make for trading but the question is and and this


is uh you know the main kind of theoretical Crux of all of this is will the higher fiscal flows support and and


effectively lead to an expansion of the uh of bank loans right so if if the Crux


of the mainstream argument is that businesses aren’t going to want to spend more


because uh uh or aren’t going to want to borrow more


um because of higher interest rates therefore decreasing the decreasing the


bank flow expansion or contraction rate and therefore leading to Leading the


layoffs well if that’s the case then is there any reason to believe that that is correlated to rates or does it correlate


to something else and my argument is the expansion and contraction is more Muslim


states of the banking sector is more likely tied to kind of the equity


structure really the the essentially it’s the capitalization of the banking system are these fiscal flows right so


when the government spends that becomes a private sector savings that private sector savings is effectively the


capital structure of the banking system right I mean that is what it’s going to use as its Equity to expand and you can


see that when we contract it at the end started to contract at the end of 2020 as the fiscal flow is really fell off


and then subsequently as tax season hit 2021 we took the second dive we saw that


spark the major sell-off in equities starting at the beginning of this year


because we saw a contraction of the bank flow cycle right we saw the contraction


of uh of that kind of endogenous money cycle that happens from the bank Flow


side and my my thought here is based on the way this all overlays right I mean


you see the big run up in 2000 heading to the great financial crisis where we


saw very stagnant fiscal flows so back in 2003 2004 there’s a relatively strong


fiscal response that gave a little bit of space for the for the private sector


to expand in terms of debt we saw that lead up into really the massive expanse


uh as as we really kind of um uh baselined out in fiscal flows that


obviously led to the great financial crisis basic mmt 101 we saw Bank flows really


take a while to to start picking back up we finally saw the liftoff happen in in 2010 after we saw the big influx of


fiscal flows following the great financial crisis fiscal flows remain relatively dormant uh we really start to


taper off 2015 2016 get as close as we’ve been to a recession uh in quite


some time at that at that juncture and then finally when Trump came into office we started to see fiscal flows take off


in 2016 2017 2018 that led to a change in um and the overall kind of the trend


of the paying flows being flows really started to take off as we headed into 2020 and then only hyper accelerated if


you will because of the massive influx of uh we’ll call kind of new new Equity into the bank sector


um and then ultimately uh collapsed as the fiscal flows fell off uh earlier


this year crunching the uh the the the cycle that occurs on the bank side of things so


that’s kind of how I’m reading it that’s the progression at least that I’ve seen over time and I think the correlation


makes sense here and can really be understood from the kind of the the mmt the Mt understanding here so that being


said we’ve been seeing relatively strong fiscal flow since we bottomed out in the middle of the summer uh September came


in very strong I mean August came as strong September came in strong October is likely going to come in strong we’re


probably going to see some strong flows we’re going to see this average kind of continue to Trend much above what we saw


for the majority of the 2010s um certainly we’ll never get back to


where we were post covid but we still we should see those fiscal flows push push


more turns out to be savings into the private sector and kind of re-spark the the bank flow the bank flow cycle now


um how could this I’m gonna give I’m gonna give two scenarios here that that uh obviously kind of go against each


other but both seem uh both seem plausible the one curveball in all of this and no one points this out


um but if if you’re a if you’re on the uh the neoclassical side of things the


one place where this Dynamic changes entirely is in the shadow banking system uh well I shouldn’t say entirely but but


it is in my mind at least a different a different situation is in the shadow banking system the Euro bank or the euro


dollar system that system operates slightly differently because um well it’s still reliant on these


fiscal flows to eventually find their way in there one they’re only going to find their way in there if the rest of the world uh if the rest of the world


exports to the US and then Imports those financial assets so that needs to uh that needs to happen


um love when my favorite and what’s up Ryan


um yeah yeah I’ll I’ll do some some uh I’m gonna uh tap the fingers or whatever


um open my water bottle slowly uh for the ASMR um


where was I the ASMR joke threw me off here uh good joke good joke


um okay euro dollar system yeah euro dollar system doesn’t operate in I mean it


operates closer to like loadable funds to a uh to kind of a money multiplier model right because it is very Reliant


uh on the collateral that comes in Via uh via the channel of exports in the US


imports from the um from the uh or is it and it receives obviously Imports as


um as dollars so it uses that to then uh to then uh structure and and is


effectively the equity of the private of that banking system the shadow banking system but what it doesn’t have going


for it is the US um like we’re going back with a Warren


Mosler discussion of all the things that that he enlisted off in terms of the Monopoly price editor well the rest of


the world isn’t doing it that way I mean they have their own states with their own currencies that are doing their own thing setting prices and so there is a


disconnect there um in terms of the U.S model versus kind


of U.S domestic model versus the rest of the world model uh the other I would say the other difference too is although


certainly income there’s going to be that income channel from the bonds another thing that it doesn’t have it doesn’t have any of the regulatory


oversight and it’s certainly the Seattle banking system is not an extension uh in any way the US government is a state so


that’s completely different it’s it’s unregulated well it’s not unregulated but it’s not regulated directly via the


Fed so you do have that as a as a difference and certainly the dynamic at


play in terms of what is actually setting the interest rate price is completely different and the euro


dollar system it’s the sulfur or Libor that’s setting the price of interest for


new loans in the U.S it’s a function of the uh the FED is Monopoly price Setter


of interest rates so these are two completely different systems in kind of the core um and kind of the core pricing function


of money itself and I’ve heard Jeffrey Snyder talk about this that uh that in


in in to him it was you know he I think he has his theory on why this happened


but I think mmt explains it perfectly in 2008 um interest rates in the U.S were pushed


to zero effectively I mean they’re during the during the height of the crisis you saw a rates drop


um in the U.S because the Federal Reserve is the


Monopoly price Center of interest rates I think that’s uh we’re gonna play a drinking game for how many times I can say that the FED is the Monopoly price


Setter of something um if you play that drinking game you will be faced by the end of the night


um so since the FED is the Monopoly price editor rates are going to fall I mean they’re going to go the direction that the FED says but since that’s not the


case in the euro dollar system because it’s not the case the market is up to


its own devices to price actual risk and in that instance Libor went through the


roof and uh Jeff Snyder has had some great discussions now about as they try and shift over to the the new pricing


system um on how it’s an ineffective system while it’s ineffective because the FED


operates get your drinks ready is a monopoly price Setter of interest rates in the U.S not uh not the same way and


domestically that is actually a risk-based assessment so all that together to how can we actually


maybe find a recession I’ll have all of this I do think that there is uh uh definitely a major risk here for the


rest of the world to have some major banking issues um if uh if the kind of you know


relatively deflationary crunch that we’ve been seeing in bankflows continues on going forward um


then yeah I mean you know then it is going to spell uh absolute disaster and eventually you’ll start to see Banks uh


get solvent I think we’ve seen what Credit Suisse uh hit that uh hit that note recently and and that that makes a


lot of sense and that could tumble into the U.S certainly so if you’re a


neoclassical or Austrian or whatever and you really want to make the the case that the world is going to end soon


financially that’s the path you need to make it that’s the only path that makes sense it’s not going to happen


uh via the U.S Channel because the U.S Channel I think you’re only going to continue to get inflation supported so


it was a 40-minute long discussion essentially kind of making my case and defending


um the uh you know kind of the mmt inflation case so I hope that made sense


let me know if you have any questions about all that if you’re watching this after the fact you’re not here live let me know down in the comments and I can


get back with you um yeah I I hope that all makes sense gold get uh Nicholas I’m assuming you’re


asking is the time to purchase gold don’t think so maybe


years ago the first thing I ever got into was gold investing I think I’ve


told this story before but I purchased gold give me a second to pull this up I


purchased gold in this is really when I started really


getting into you know using my savings for uh


for investing was I want to say yeah I I think and this is just I had no timing


skills whatsoever here but if I if if memory serves I bought gold sometime and


maybe starting 2007 2008 I mean that’s the first time I had a job where I could maybe really get the income flow to do


it I want to say really at the bottom of the great financial crisis I was getting into things I was a huge gold bug you


can’t see any of this right now I’m sorry um


there we go okay yeah I want to say anything starting in 2007 is really when I started kind of researching I really


got into what Peter Schiff had to say and so around 2008 saying when I finally saved up enough money I think we bought


like 10 ounces of gold I want to say maybe around eight nine hundred dollars


um anyway we bought it at that point um it just so happened that we were


getting ready uh to get into our first house and it just so happened that it was right


around early September of 2011 and then I needed some cash and that is when I


sold and it had nothing to do with timing but that’s the last time that I’ve really ever been involved in Gold I


will say I mean I will say this that in terms of the kind of reinflationary disinflationary cycle gold does do best


when things start when things start kicking up again I mean you’ll see a moderate correlation between the gold


chart in front of you right now and when I pull up the


data dashboard that I have you’ll see a relatively uh I mean I don’t say strong but a


correlation between between the gold cycle and in the overall Bank flow cycle so


there is a bit of a correlation there I I really think that gold I mean my my


thought here is I’m going to switch back to the uh to the Chrome tab my thought


is that we likely repeat what we did post grade financial crisis that kind of


makes the most sense to me so personally I won’t be getting long gold could I be wrong yes would it bother me if I’m


wrong no that’s kind of my thought on it I’ve really gotten out of the gold game altogether so hopefully that’s not too


disappointing of an answer but uh not what I’m I’m looking for right now for


the most part I stick with uh with equities because I just think the the data there is is so much more


correlated to forward returns than any other data you can get um so that is uh that is where I stick


um let’s see let me go over all my notes again let me make sure I’ve kind of hit all the high points oh yeah okay so let’s do this for a second I do want


to talk about I I will admit that I I certainly didn’t see the wave of inflation that we ultimately got


um to the extent that we ended up getting it and um


but I don’t think that was a failure in mmt I do think it was more of a failure in me just assessing the macro landscape


I I really didn’t think we’d get inflation for that long I mean it makes sense that we got a little bit a little


bit of boost of inflation I mean certainly with the massive fiscal flow that we saw I mean that that would uh


that would raise prices and I mean there’s no way around that but I didn’t think it


would stick for that long I really would argue though and I’m going to switch back to a different screen here I really


would argue that the inflation that we’re seeing was originally caused by a


supply shock uh transitory whatever you want to use I still think it was that


was the case and I still think the data does not spell out any sort of well we spent too


much money or I mean whatever the argument is there was too much QE immediately none of that supports the


inflation thesis I do think it is ultimately a bottleneck of


um of the supply chain and I think it was a supply shock and in terms of the


pricing Dynamic when it comes particularly to Commodities but in quite a quite a few assets I really think it’s


the supply that drives the price more than the demand while


markets pay more attention to demand and and as at least just and it’s just an intuitive sense it’s not necessarily


baked into any of my models per se beyond what you’re about to see but it’s just my assumption and one day if I can


ever you know prove it research-wise I will certainly prove it but um


my intuition tells me that like what you have up on the chart is is probably more often uh not the case which is uh this


is my oil comparative inventory chart stole this from art Berman he made this uh pretty popular years ago and


effectively it’s just showing the relative Supply that is available with


oil against the price you can see the strong negative correlation between the two supply drops price goes higher it’s the


supply that’s pushing the price of oil oil of course is kind of a main component of energy uh in in the


inflation channel from energy so I mean I think a lot of this comes from a lot of the inflation we’re seeing is tied to


the drop in supply of oil of energy finding its way into the overall price


market and in theory we we should


we should be seeing an ending to this right I mean this is this is kind of my point okay yeah give me another second


I’m I’m thinking of another of another thought here um hold on I’m pulling up the wrong screen here in theory if if spending


caused the inflation then we should be seeing a major drop off of inflation at this point because we’ve seen a major


drop off of fiscal Flows at this point right we’ve seen Bank contraction we’ve seen fiscal contraction over the last


year if inflation is being kept High because of too much money or whatever it


ain’t happening uh because of what the neoclassical argument would be right which is why I think the only thing left


that can be actually causing the inflation is or at least perpetuating the inflation is the mmt argument


um I I just it nothing else here’s the thing I could be convinced by


another argument I don’t I mean I don’t in one sense I don’t care necessarily what the Pilot’s decision ends up being


I mean I I want what’s best for my country what’s best for the people of my country what’s best for the world policy


wise I will obviously advocate for good policy over bad policy any day of the week but


what what I what I haven’t seen yet is compelling data that can show me that


any of the kind of normal Arguments for what’s causing the inflation that it’s too much spending or whatever right I


mean I really just think it comes down to a supply chain issue and we’re still seeing that and then ultimately the


reason that it’s perpetuated even as we start to see quite a few Commodities begin to drop right I mean across the board a lot of these Commodities have


dropped quite a lot the reason I think we continue to see those price levels being perpetuated is because the FED has


started on this uh rate hike cycle which will never end and this is where I’m going to finally kind of wrap things up


um kind of the last argument I probably will go on for another hour but uh those are having to wrap things up and if you aren’t here and you do have any


questions make sure you fire away um I’d be happy to uh be happy to answer them


um that I mean I really think there’s a there’s a real case that could be made


that we could end up seeing a hell of a bull run out of this right because if we are able to get the pain flow cycle to


to restart here and again if I’m right that uh that there is this kind of leader uh that happens via VIA the um


and again if you are new here I swap the colors I bet I botched it um


on accident if there is a way uh to really you know reset the the cycle and if the fiscal flows are going to precede


the bank flow cycle then we could see the bank flow cycle start up again and if that’s the case we have interest


rates already pushing higher we’re going to start to see the impact of the fiscal


flows that are going to be added because of the uh because of the interest payment on the new bonds heading out so


we could start seeing even more financial assets headed out to the to the banking sector and then on top of


that here’s the other thing too if I’m a bank I make money because I make loans


at the interest rate right and what I’m going to get is the interest payment right the principal is going to wash off


the balance sheet I get to keep the interest payment so if I’m a bank and all of a sudden interest rates are are


getting really high and there might be uh the expectation that the fed’s going to Pivot right if that’s how it plays


out what am I looking to do I’m looking to to get around every regulation to make any new stupid loan possible going


forward I mean I think we saw a lot of that exuberance uh throughout 2020 into into 2021.


so I don’t see any reason for the banks to start being like Oh well we’re really going to stop making loans I mean


interest rates are as high as they’ve been in a very very long time banks are going to want to look for every opportunity uh to make to make loans and


that’s part of the Minsky assignment that’s part of the Minsky hypothesis is that eventually you get into kind of a Ponzi style uh Ponzi style lending


lending cycle and that to me makes more sense right now than anything else so I


I mean I really think you could end up seeing at the end of this a strong bull run to finish things off as opposed to


uh as opposed to a complete collapse now again this is this is why it’s very difficult this is why at the end of the


day my trading strategy is is data driven I I dump all these elements into


a Bayesian framework and I say you know kind of math figure it out


um because uh you know I mean yeah there are so many kind of counterfactual


arguments that you could bring up in the macro world and the data does lead I mean the good thing is at this point


um you know the main you know hedge funds have yet to exactly figure this out so I I’ve yet to see the uh the


correlation to four returns diminish so the data will tell the story but you


have on the one hand the um the contraction the the contraction


the bank flow cycle especially the euro dollar market really uh weighing things down but on the other hand you still


have this what seems to be potential kind of growth engine getting ready to start


um via the fiscal channel in the US you know which one wins out and I could easily make the case that the you know


the physical flows went out here and if we get a new cycle in um


and being flow acceleration uh we could see really I mean we could see this could be you know we could be in the


2000 to the 2008 uh you know correlation here we get a year of things running hot


so I I don’t think that that’s off the you know it’s off the table yet um am I you know am I you know placing


my pets now no again I’ll wait for the data to to confirm such an idea but I


don’t think it’s uh I don’t think it’s out of out of question at this point


um check my notes one more time let me see if I hit all the points that I wanted to


at this time yeah I think I did um so real quick before I I do finish


things up here I want to show one more thing and that is


um I probably get asked two questions more than any other anything else that are even even Market related or not


um and that is Douglas do you ever uh put any promotional pricing can I get


a you know A reduced price of your patreon feed and then also you know what


is what is it that you’re working with behind uh in that kind of magic uh in


the magic system that you’ve built and I’ve never offered a promo price


before but I I really have a desire to really start to expand the scope of


what I’m offering here especially for Traders investors and really want to you know push the the mmt thesis it’s been


taking a big hit as of late been blamed for everything we’re seeing even though there’s my understanding there’s not an


mmt policy maker that’s made a decision uh in in quite some time


um ever actually uh and so you know I really want to expand the scope of what


I’m doing here so I’m offering for the month of November it’s open right now but for the month of November 25 it’s


normally 69 25 for my top tier what’s going to happen is um I also get asked quite often is there


a cheaper tier that you can get in or you know like a once a week tier so this is it I I’m gonna offer which will be


the top tier going for 25 promo price for the month uh throughout the end of November


and if you lock that in it’s yours forever I won’t ever raise the price um if you’re locking that price it’s


yours and then uh going forward starting in December I’m going to swap to two tiers one where you get kind of a daily


update and access to everything including a daily update and then one for more of a kind of a market Watcher type where there’s only going to be a a


weekend overview uh a sort so if you want in before the price goes back up now would be the time this is


the cheapest I’ve ever offered anything so uh so yeah fire away and uh join up


and if you have any questions you know drop me a line drop me a a DM on Twitter


uh Twitter uh in the link below or just drop me a message here on YouTube and we can connect but uh yeah


it’s yeah this is the only time I’ll probably ever offer a promo I mean I really think what I what I offer is a ton of value to it so if you are active


Trader active investor make sure you check that out uh Link in the description below as well uh for my


patreon page which is just patreon.com mmt macro Trader um with that being said I think that is


what I have for tonight so unless there are any last minute questions uh that


come on in last second questions that come on in here I’m going to be ramping things up again thanks for joining if


you are new here hit that subscribe button turn that notification Bell on and if you didn’t end up finding this video helpful make sure you give it a


thumbs up on the way out with that being said I’m going to go ahead and log off thank you everyone for joining us tonight and we will see you soon uh for


the next live stream

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